Further to our previous article documenting the decision to extend the UK-wide programme of business support loans to 31 January 2021, the chancellor Rishi Sunak has decided to further extend the window for submitting new applications for three of the business interruption loan schemes to 31 March 2021 in order to provide further temporary financial support to UK businesses, namely:
The Bounce Back Loan Scheme (BBLS)
BBLS loans are suitable for SMEs, microbusinesses and other businesses looking for small loans between £2,000 and £50,000.
These are to be documented as term loans to be repaid over a period of six years with the first 12 months interest payments being covered by the government and no repayments to be made within the first 12 months.
The Coronavirus Business Interruption Loan Scheme (CBILS)
CBILS loans are for businesses with an annual turnover of less than £45m that are looking for up to £5m in finance, available on repayment terms of up to six years. A range of financing options are available e.g. term loans and asset finance.
The first 12 months interest payment and any lender-levied fees are covered by the government so as to reduce upfront cost and lower initial payments for the borrower.
The Coronavirus Large Business Interruption Loan Scheme (CLBILS)
CLBILS loans are for larger businesses with a group turnover of more than £45m that are looking for up to £200m in finance. Like with CBILS loans there is a range of financing options available including term loans, revolving credit facilities and asset finance.
The CLBILS gives the lender reassurance by way of a government-backed partial guarantee of 80% against the outstanding balance of the facility in question.
As part of these further extensions eligible businesses will continue be able to "top up" a BBLS loan if they originally borrowed less than the maximum amount available to them. A borrower can apply for a top-up that is for the lesser of £50k or 25% of the annual turnover the borrower certified in their original successful BBLS application, less the value of their original loan.
Adding to the above extensions, the Chancellor announced further changes to the BBLS under a “pay-as-you-grow” initiative on 5 February 2021. These changes include:
- An option for companies to extend the length of a loan from six to 10 years
- An option to make interest-only payments for six months (this can be used up to three times throughout the life of the loan)
- An option to pause repayments altogether for up to six months
These further extensions and changes continue to reflect that despite these government-backed loan schemes being available for nearly a year, many companies are of course still facing the economic impact of the lock-downs/tiered social system and the associated reductions in revenue. It is likely that this will continue to be felt well into 2021 at least.
A combination of the above three options will likely provide much needed support to many struggling business sectors until normal revenue levels resume and hopefully reducing the amount of business failures and job losses once the support schemes are wound down.
Jonathan Porteous, head of banking and finance at Stevens & Bolton, comments:
"The chancellor’s decision to further extend emergency loan schemes provides welcome support for companies struggling to achieve adequate revenue levels throughout this third lock-down, as well as providing support for any effects that the end of the Brexit transition period may have had on businesses.
However, it is worth considering the long-term impacts that this further extension may have. Increased levels of borrowing may result in companies struggling to repay their loans once support ceases, and we may begin to see increased numbers of defaulted loans as a result."
Jonathan Porteous